Low-Income Housing Tax-Credits (LIHTCs) are available through a federal program created by the Tax Reform Act of 1986. The purpose of the Tax-Credits is to encourage investment in constructing or improving properties that provide affordable rental housing. The Tax-Credits can make it easier to finance these types of properties by reducing the cost of development through significant tax saving.
If you believe you are developing qualifying property for low-income residents in your state, you need to understand the requirements to get Low-Income Housing Tax-Credits. The experienced Scottsdale Arizona housing tax-credit lawyers at Lotzar Law Firm, P.C. can help you to determine if you qualify and guide you through completing the process of securing your eligibility for tax-credits. Call today to schedule your consultation with a legal professional who can assist you.
Requirements to Get Low-Income Housing Tax-Credits (LIHTCs)
Low-Income Housing Tax-Credits are awarded to sponsors of eligible housing projects on a competitive basis. These credits can reduce tax liability on a dollar-for-dollar basis by offering credits instead of deductions, thus maximizing the benefit of qualifying for this tax-advantaged funding.
Section 42 of the Internal Revenue Code establishes the rules for LIHTC Program but individual states award the credits to qualifying developers. The Arizona Department of Housing indicates that the state’s Qualified Allocation Plan (QAP) “encourages “targeting” of the units to income levels lower than the federal limits.” The minimum federal limits for a project to qualify for credits under the federal program require that one of the following must be true:
- At least 20 percent of the residential rental units within the development are rent restricted and are occupied by people with incomes that are 50 precent or less of the median gross income in the area.
- At least 40 percent of the residential rental units within the development are rent restricted and are occupied by people with incomes that are equal to 60 percent or less of the median gross income in the area.
The tax credits are eligible to be claimed only on units set aside to participate in the Low-Income Housing Tax-Credit Program. The proposed development that will provide the affordable rental housing must either be a new construction, or must involve substantial rehabilitation of an existing property. Investors/developers may also meet the requirements to get Low-Income Housing Tax-Credits if they acquire a building for the purpose of substantially rehabilitating it to provide affordable housing.
The rental program for which credits are granted must remain in compliance with the LIHTC program requirements for a period of at least 30 years from the first taxable year in which a credit is claimed.
Because of the financial benefits to developers of qualifying for Low-Income Housing Tax-Credits, the process of qualifying for the credits can be very competitive. It is essential you are represented by a qualified and experienced legal professional who can assist you with meeting the requirements to get Low-Income Housing Tax-Credits. Call today to speak with a Scottsdale real estate development lawyer at Lotzar Law Firm, P.C. to get help.
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